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Welcome to MoneyTransferComparion’s economy and currency news section. Our expert economist will be happy to provide you with a free overview of the most interesting things that happened last week in the world of currencies, as well as a prediction for next week’s happenings.

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Analysis and Prediction:

Date of publication: June 18, 2018 | Author: Tim Clayton

Last Week’s Summary

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US

US consumer inflation data was close to expectations with a 0.2% CPI increase for May with the year-on-year rate at a five-year high of 2.8% from 2.5% previously.
Retail sales data was stronger than expected with a 0.8% increase for May compared with consensus forecasts of 0.4% and underlying sales also made firm gains. Continuing jobless claims declined to a 44-year low, reinforcing confidence in the growth outlook.
The Federal Reserve increased interest rates by a further 0.25% to a 1.75-2.00% range which was in line with consensus forecasts.
The projections from individual committee members pointed to a further two rate hikes over the second half of 2018 and another three increases in 2019. The statement maintained expectations of further gradual increases in rates with inflation now close to target.
The overall rhetoric was hawkish and the dollar eventually made strong net gains with the currency index at 6-month highs.

UK

The UK inflation data was in line with market expectations as the annual rate unchanged at 2.4%.
The latest average earnings data had little overall impact, but there was a significantly stronger than expected reading for retail sales.
Confidence surrounding the growth outlook remained fragile and markets remained sceptical surrounding the potential for an August rate hike which limited Sterling support.
Political developments were important with the government having major problems over Brexit passing legislation within the House of Commons. Fears that rebels would undermine the government’s negotiating position were important in undermining Sterling sentiment.
Overall, Sterling tested 7-month lows against the dollar, but secured net gains against the weak Euro.

Euro-zone

The UK PMI construction and services sector releases were slightly stronger than expected with the services sector strengthening to 54.0 from 52.8 previously.

Euro-zone data releases had only a slight impact, but the latest ECB policy decision triggered substantial moves.
The central bank announced that the pace of bond purchases would be cut to EUR15bn per month from EUR30bn for the fourth quarter of 2018 with the programme then expected to finish.
The bank was still relatively uneasy surrounding the economic environment and pledged to keep the main interest rate at 0.0% until at least summer 2019.
Markets had expected a rate increase before mid-2019 and the rhetoric was important in triggering very sharp Euro losses as a downgrading of rate expectations from investment banks helped trigger a fresh liquidation of long positions.

Divergence expectations important

Overall, there was fresh speculation over policy divergence within the major economies.
Markets were confident in expecting further US interest rate increases while there was a scaling back of expectations in other major economies with the ECB, Bank of England and Bank of Japan all pledging to keep monetary policy very loose. The divergence was pivotal in supporting the US dollar.

Trade fears remained important

Market concerns surrounding trade policies continued to have an impact amid fresh tensions between the US and China.
Commodity prices lost ground amid doubts surrounding the global growth outlook. In this environment, there were further losses for the Australian and Canadian dollars with the latter at 12-month lows against the US currency.

International

The Summit meeting between North Korean leader Kim and President Trump had a limited impact in weakening yen support.
The Bank of Japan left monetary policy on hold while it downgraded its inflation forecasts.

Next Week’s Forecast & Events

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Trade will again be an important element

Trade factors will continue to be an important factor in the week ahead, especially with further concerns surrounding the US-China tensions.
Increased fears over retaliation and escalating disputes would tend to undermine the Australian and Canadian dollars while a more pragmatic attitude would tend to lessen the risks of selling pressure.

US

The latest US construction data is due for release on Tuesday with the existing home sales release on Wednesday.
In addition, the Philadelphia Fed manufacturing survey and jobless claims releases are due on Thursday.
The overall market impact is likely to be limited unless there is exceptional data.
Comments from Federal Reserve officials will be monitored closely to assess whether there is any attempt to shift market opinion with a slightly more dovish policy stance.
Emerging-market tensions are liable to provide net support to the US currency.

UK

The Bank of England will announce its latest interest rate decision on Thursday with no expectations that there will be a change in rates.
There will be no inflation report accompanying this meeting and Governor Carney will not be holding a press conference.
The policy statement and vote split will still be very important in assessing the potential for a rate hike at the August meeting.
Data releases will be limited to the latest government borrowing data.
Political developments will continue to have an important impact with further positioning ahead of the late-June EU Summit while internal government tensions will also be a key focus.
A lack of progress in negotiations and persistent policy splits within the Conservative Party would tend to undermine Sterling support.

Euro-zone

The main focus for Euro-zone data releases will be the flash PMI data due on Friday. The Euro-zone growth data has been relatively disappointing over the past few months. Another set of weak releases would reinforce expectations of a very dovish ECB stance while strong data would tend to trigger a reassessment of market sentiment.
Comments from ECB officials will be watched closely, especially with a dovish market reaction to the latest policy meeting.
Overall, vulnerability on yield grounds will be offset by structural support.

International

The Swiss National Bank will hold its quarterly policy meeting on Thursday with no change in interest rates expected, although the bank’s rhetoric and forward guidance could have an important impact on the Swiss currency.
The Canadian inflation and retail sales data are due on Friday with most attention on the inflation data which will have an important impact on expectations surrounding a July rate increase.
OPEC will hold its bi-annual Summit meeting in Vienna on Friday and there will be volatile trading in oil markets which will also have a significant impact on currency markets, especially the Canadian dollar.

Currency Forecast for Next Week

Currency pair Spot 1-week forecast 1-month forecast
EUR/USD 1.159 1.145 1.162
USD/JPY 110.7 111.0 111.7
EUR/GBP 0.873 0.870 0.863
GBP/EUR 1.145 1.149 1.159
GBP/USD 1.328 1.316 1.346
AUD/USD 0.744 0.740 0.730
USD/CAD 1.319 1.328 1.312
USD/SGD 1.351 1.358 1.362
USD/HKD 7.850 7.850 7.850
NZD/USD 0.693 0.700 0.682
GBP/JPY 146.9 146.1 150.5
GBP/AUD 1.784 1.779 1.844
GBP/NZD 1.916 1.880 1.974
GBP/SGD 1.794 1.787 1.834
GBP/HKD 10.42 10.33 10.57
GBP/CHF 1.324 1.333 1.367

 

 timTim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including Investing.com and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics. 


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